Sunday, January 27, 2008

Dr. Kerviel and Mr. Hide

Kerviel, the SocGen trader is responsible for "plain vanilla" futures hedging on European equity market indices and had taken massive fraudulent directional positions in 2007 and 2008 beyond his authority, abusing his knowledge of the group's security systems, SocGen said.

"Societe Generale's report of fraud comes four months after French competitor Credit Agricole SA said an unauthorized proprietary trade at its investment-banking unit in New York cost it 250 million euros. [In Japan] Sumitomo Corp. disclosed a $2.6 billion loss in 1996 on copper trades. The Japanese firm blamed unauthorized trades by its chief copper trader, Yasuo Hamanaka, who was known as "Mr. Copper" in the markets because of his aggressive trading. Hamanaka was sentenced to eight years in prison in 1998." (Bloomberg)

About Societe Generale's Jerome Kerviel, banking experts are still "puzzled by how such big positions of bad bets were allowed to pile up without any oversight by managers." In Davos, European Central Bank president Jean-Claude Trichet called on the financial sector to "discipline itself". While refusing to comment directly on SocGen, he said regulation needs to be upgraded to take account of ever more complicated financial instruments.

"There is no way all this trading could have been done in a vacuum without anyone noticing," said Bill King of Ramsey King Securities. "Somebody in the back office or in management, or both, were asleep or turned a blind eye," said King. "Ever notice that when a firm blows up, it's always blamed on a 'rogue trader' ?" (In NYPost)

"With Wall Street in crisis and banks begging for cash, the West has lost its swagger. Can China step in and keep the global economy on its feet?... The current economic crisis has revealed the close connections an interdependencies between the US, the world's biggest capitalist economy, an communist China... When the stock market caught on to what was happening, shares tanked on fears that the US would fall into recession. That prompted Ben Bernanke to slash US interest rates by an extraordinary three quarters of a per cent last Tuesday. (The Observer)

And finally, the Nikkei...
"French bank Societe Generale will aggressively market structured deposits, whose returns are linked to stock or commodity prices, to regional financial institutions. A specialized sales team will be formed to provide products tailored to the needs of each customer. (Thursday edition)"

Products tailored to the needs...?

"The world's biggest financial companies have announced more than $120 billion in writedowns and credit losses as the U.S. housing slump rattles debt markets." (re-Bloomberg)

Societe General's chief executive Daniel Bouton is facing an uncertain future.

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